Rebalancing Model Portfolio Tomorrow, November 30, 2017

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Long/Short Equity, Growth At A Reasonable Price

Contributor Since 2009

J. Stephen Castellano founded the equity research and financial modeling consulting firm Ascendere Associates in 2009, building upon a diversified 20-year career in sell side and buy side equity research. His roles included coverage of the steel industry at PaineWebber and telecom services at Warburg Dillon Read (the predecessors to UBS), where he worked closely with institutional sales people, traders and investment bankers. In addition, he provided analytical support for numerous independent valuation, consulting and investment banking studies, including for mergers, secondary offerings and IPOs. At Ascendere Associates, in addition to developing equity research for family offices and other clients, he has consulted for a wide range of startups, established businesses, and global consulting firms. Mr. Castellano holds a B.A. in English from Oberlin College, an MBA from the F.W. Olin School of Business at Babson College, and has passed the first two levels of the CFA exam.


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  • I rarely watch morning television, but I could not stand Lauer even for 2 seconds at a time. A bullying clown.
  • NBC should fire the entire Today Show staff, bring back Ann Curry, and Katie Couric as well, in fact. How about Bryant Gumbel too?
  • I can't imagine Bryant Gumbel involved in such nonsense. Maybe he's a bit salty, but who doesn't like a little seasoning once in a while? At the first reunion show, Couric and Gumbel can do an expose on Bitcoin.

This is an update to our latest model portfolio report 36 Stocks for November 2017. A more detailed report is available here

New Actions Required

  • Long model:Kohl's Corporation (KSS) reached a price target.*
  • Long model: Illinois Tool Works Inc. (ITW) reached a price target.*
  • Short sale model: The Mosaic Company (MOS) reached a stop loss target.*
  • Short sale model: Axalta Coating Systems Ltd. (AXTA) reached a stop loss target.*

*We intend to rebalance the model portfolio just prior to the close tomorrow, November 30. If these stocks pass our ranking process, the positions will be retained in the model portfolios at new initial equal weights.

Sell Side Upgrades and Downgrades Today

  • Long model: ITW price target raised to $190 from $180 and maintained Buy.
  • Long model: Arista Networks, Inc. (ANET) price target raised to $250 from $210 and maintained Neutral.

Also of Note

  • The Nasdaq (QQQ) sold off -1.27% today, presumably on “profit taking.”
  • While 7 from the original 10 Tech and Materials stocks in our long model were hard hit, the overall Core Long Model portfolio finished +0.46% higher today.
  • MKS Instruments Inc. (MKSI) was the worst performer in the long model today, down -8.75%. 
  • Norfolk Southern Corp. (NSC) was the best performer today, up +4.80%.
  • YY Inc. (YY)Kronos Worldwide, Inc. (KRO) and Arista Networks, Inc. (ANET) -- which were down -6.97%, ,-4.24%, and -3.84%, respectively, today -- had previously reached price targets and had been replaced with cash positions. (See our recent write-ups on YY and KRO.)

Return Data

For the month to date the Core Long Model portfolio is up +5.03% on a simple cumulative return basis (sum of daily returns). This compares to the S&P 500 up +2.01%, the S&P 1500 Composite up +2.08%, and the Russell 2000 up +2.66%.  The Core Long/Short Model is up +5.56%.

Presaging Major Sell Side Analyst Actions

  • MTD 12 stocks in the long model have received 34 positive price target revisions, and 6 stocks have received 8 ratings upgrades from sell side firms, led by Facebook, Inc. (FB).
  • MTD 5 stocks in the short sale model have received 17 negative price target revisions, and 5 stocks have received 8 ratings downgrades, led by Under Armour, Inc. (UAA).

Latest Model Portfolio Stock Returns and Price Targets

Stock Selection Criteria

Our criteria for selecting stocks in these model portfolio strategies, which heavily weight proxies for cash flow growth and ROIC, include the following:

  • Relative Value
  • Operating Momentum
  • Consensus Estimate Revision Momentum
  • Fundamental Quality

We rebalance our model portfolios every month and have been tracking long-only and long/short theoretical daily returns since March 31, 2009 (up +474.4% and 378.5% through October 31, 2017, respectively).

These models also tend to generate some solid ideas for 12-month holding periods (up an average +25.60% versus an average of +15.87% for the S&P 500 Index since December 31, 2015).

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: As a simple quantitative model based on fundamental rankings, the portfolio models do not take into account rumors or pending M&A transactions. Theoretical return data reflect simple cumulative returns (not compound returns) and do not assume the impact of costs such as execution fees, margin fees, slippage, the availability of stocks for short selling, or any other kind of cost. There are limitations inherent in our theoretical model results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. We do our best to provide accurate information in this report, but do not guarantee its accuracy.

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